The distribution is definitely high because the energy sector is down. But it is also inflated some too. If it was strictly based on NAV it would currently be around 11% rather than 13%.

And it's true that NAV and distribution rate usually work inversely. As NAV goes up the distribution rate comes down, and visa versa. But this isn't a rule. They don't work like bonds. This is simply just a soft mandate inside the prospectus, meaning it's a goal of the fund manger to hold par from the original IPO.

But the problem with CEF's is if they can't sell all their shares or there's a sell-off, they usually start using leverage to cover distributions, and eventually that comes back to bite them if P/E can't keep up, and now they're eating through margin with interest from leveraging. And the only way to catch up is to reduce the distributions. And unfortunately, NAV comes down too because leverage equals liability.

As to cost basis on ROC, unfortunately the investor has to take the hit. The CEF gets to write off the distributions as an expense outlay even though they're mostly ROC. That's a benefit of CEF's essentially being traded LLP's and mimicking a corporation. Any expense outlay is a deduction. But instead of the investor paying tax on a capital gain, it simply gets subtracted from the cost basis. This prevents the investor from being double-taxed if they realize a capital loss.

Does that make sense?